Government-owned utility Uganda Electricity Distribution Company Limited (UEDCL) is preparing to dive into the debt market in order to finance its takeover of assets of electricity distribution firm Umeme Ltd, whose 20-year concession expires at the end of March 2025.
Executives told stakeholders during a public hearing on Tuesday in Kampala that UEDCL will borrow $255 million to finance the Umeme buyout, and an additional $210 million to invest in the existing network to expand it over the next three years, in a bid to meet the growing demand for power.
This spend is part of the Ush4.02 trillion ($1.08 billion) projected revenue growth requirement over three years from March 2025, that the power utility needs to also meet non-network investments to the tune of Ush232 billion ($62.8 million) as well as distribution operation and maintenance costs kitty.
Paul Mwesigwa, UEDCL managing director, told The EastAfrican that the utility is sourcing the loans at low interest rates – below 10 percent per annum – from local and international banks, but said this debt will not feed into the end-user cost of power, in a market that is already tariff-sensitive.
The sector regulator Electricity Regulatory Authority (ERA) has handed UEDCL a stringent target of 15.2 percent energy distribution losses and 300,000 new connections annually by 2027.
Umeme inherited energy losses of 38 percent in 2005 and, as of end of 2023, the losses stood at 16.2 percent, the company’s annual report shows.
Eng Ziria Tibalwa Waako, ERA CEO, says UEDCL submitted an application for three licences – distribution, supply, and sale -- as well as tariff performance parameters, for which a decision will be reached before the end of this year.
“Determination of the application will be in December, ahead of the expiry of Umeme’s concession, which we believe allows sufficient time for a smooth transition,” she said.
In a second concession in the sector after Eskom in 2003, Umeme Ltd took over the electricity distribution function from UEDCL in 2005 for much of the country with national grid coverage, leaving the state-owned utility to operate smaller consumer markets for mainly off-grid power supply in four districts.
Umeme invested in the network and operated a profitable concession that saw it cross-listed on the Uganda and Nairobi securities exchanges, but it remained a target of attacks from the business and political leadership, with President Yoweri Museveni often accusing the company of making billions from high power tariffs, which impacted the manufacturing sector.
This caused uncertainty among investors and shareholders, fearing that the government would not grant an extension to the power distribution firm’s concession beyond 2025 -- which was confirmed in 2022 -- despite years of negotiations and push for renewal.
UEDCL’s application says that despite Umeme’s heavy investments in the distribution network, over two decades, the infrastructure still carries a number of defects. For instance, the distribution lines are assessed as 80 percent satisfactory, with defects that require new investment standing at 20 percent.
Umeme’s substations are also assessed as 86.3 percent in good condition, with 13.7 percent defects cited, while the switching stations in the proper functioning state are 71.1 percent and 28.9 percent defects registered, the UEDCL chief engineering and technical services officer Protaze Tibyakinura reported.
Uganda’s installed capacity for electricity generation currently stands at over 2000MW, with an estimated 60 percent peak consumption and a customer base of 2.2 million consumers, but with demand for power growing at 10 percent per annum according to ERA, the network still needs more investment and expansion.
UEDCL seeks to take over the power distribution network at a time when the Uganda government is merging its agencies to cut costs, and entities in the electricity sector are top of those targeted for rationalising, with three functions – generation, transition, and distribution – slated to be merged.
During the hearing, the Uganda chapter of Publish What You Fund asked the regulator to reject UEDCL’s application to assume Umeme’s assets, arguing that the move contravenes a cabinet decision taken in 2021 to merge state-owned agencies including the power companies in the energy sector.
“On the contrary, this application is part of the implementation of those reforms to merge the agencies. It (the application) does not contravene those reforms,” Eng Tibalwa responded.
UEDCL was created in 2001 after the unbundling of Uganda Electricity Board, and the firm has taken over five concessions, namely, Ferdsult Engineering Ltd (2017), Bundibugyo Energy Cooperative Society Ltd (2021), Pader Abim Community Multipurpose Energy Cooperative Society (2023), Kyegegwa Rural Energy Cooperative Society Ltd (2024) and Kilembe Investments Ltd (2024).
